Global commodity markets continue to be buffeted by escalating geopolitical tension with crude leading the way for metals and agriculture. Huge volatility is the result. The uncertainty is palpable as risks across markets heighten. External markets are choppy.

To be sure, Libyan crude is not available at a time when market fundamentals have been continually tightening and demand growth is robust. WTI closed above $100 a barrel for the first time since September 2008. Brent, on the other hand, is around $ 115 a barrel. While gold scales new peaks silver is touching multi-decadal highs as investments flow into this well-known safe haven asset.

Agricultural markets are moving up with renewed vigour after witnessing a spate of selling a week earlier. Food inflation has now become a global phenomenon and import-dependent developing countries are the worst hit. The world opened 2011 with lower inventories of major crops. Weather in the northern hemisphere over the coming months will be crucial. Battle for acreages, especially in the US, needs to be watched closely. On current reckoning, high farm goods prices are unlikely to relent at least until June-July. The latest is the European central bank governor's comments turning hawkish. The possibility of first ECB rate hike in the near future – may be next month – seems real. One is not sure if it is the beginning of the end of easy money.

Overall, it is being increasingly realised that the far from normal current geopolitical situation and associated uncertainty and volatility is unlikely to go away soon. Investors have to remain glued to the market for any early signals of a change in market direction.

Gold: Pries are testing all-time highs as flight to safety has boosted interest in the precious metal. In London on Friday, the PM Fix was at $1,427 an ounce, up marginally from $ 1,422/oz the previous day. Silver bucked the trend with Friday AM Fix at $ 34.43/oz, down 0.3 per cent from the previous day's $ 34.53/oz. The background is supportive of further price escalation with a combination of unrest in the MENA region, rising crude prices, fears of inflation building up and of course weaker dollar. Physical demand is surely taking a hit; but flow of speculative funds from committed investors is buoying the market up. Silver as usual moves in tandem with gold. However, given silver's weak fundamentals, there will be more volatility and a sharper correction in the event of gold moving down. So long as geopolitical situation remains tense, buying on dips may be advisable. However, beginning with ECB, any move to curtail easy money and hike rates to contain inflation may prove unfriendly to gold and silver prices, so will an improvement in equity markets if macro-data continue to be favourable. A further upside potential for gold does exist but will be probed in fits and starts. Higher European yields represent a risk to the recent gold rally.

According to technical analysts, the rally may extend towards 1460. A fall below 1400 would provide buying opportunity. Silver has outperformed gold. The recent acceleration may drive prices towards 38.50 area.

Base metals: Geopolitical instabilities continue to weigh on the complex. While one can conjecture how the situation will unfold in the coming weeks, if the uncertainties do not worsen or do not affect macroeconomic performance, any decline in prices should be viewed as a buying opportunity. Consumption demand growth is turning increasingly robust. After breaching the psychological $10,000 a tonne mark and then declining, copper prices have recently retraced the declines of previous two weeks. On March 4, LME cash was $9,887/tonne, down from previous day's $9,904/tonne. Stock position is satisfactory. There could be a small pullback in the short-term. However, the second quarter is likely to see copper making strong upward strides.

Crude: Even as geopolitical uncertainties dominate market sentiment, the demand side is looking increasingly robust, with notable contribution from China and India. In addition to Libya, the risk of further supply crunch in future weighs heavily on market sentiment.

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